51. What is the Business Cycle? Why Does it Matter NOW?

09/06/24 • 35 min

We are revisiting the business cycle and how it relates to the menstrual cycle, much like we did in ⁠Episode 13⁠ on Recessions, but we compare the phases in each cycle, side-by-side this time and break it down further.

What Is The Business Cycle?

The Business Cycle is Periods of economic expansion and contraction based on the 3-Ds we discussed last time: depth (how bad is it?), diffusion (how widespread?), and duration (how long?) of a broad range of economic indicators.

The periods of expansion and contraction begin and end with what is called “turning points” as defined by the ⁠NBER⁠ (National Bureau of Economic Research). The turning points become peaks and troughs. Peaks are when the economy is slowing down. Trough is when it picks back up.

Why Does It Matter?

Monitoring economic data, such as GDP and unemployment, is crucial for assessing the health of the economy and making informed investment decisions. The stock market is not the economy, but it is closely related to the business cycle and the health of the consumer. Understanding the business cycle can help investors anticipate market trends and adjust their investment strategies accordingly.

Hard Landing vs Soft Landing vs No Landing

Soft landing is a slowdown in economic growth with a controlled reduction in inflation (think of a pilot making a slow controlled descent under the cloud cover to safely land a plane) and it’s usually followed by a period of growth.

Hard landing occurs when the economy contracts sharply due to the central bank's efforts to control inflation (raising interest rates too high for too long).

No-landing occurs when the economy continues to grow despite a series of contractions in monetary policies.

"The business cycle, it's like the menstrual cycle, more than just a period."

In this analogy:

The Uterus is the Economy
The Business Cycle is the Menstrual Cycle
The Stock Market is NOT the economy, it's a bunch of companies. So in this example, it could be companies selling pads, tampons, birth control, etc.

[Disclosure: we’re not medical doctors or scientists, so just go with our analogy for funsies.]

The Business Cycle Compared to the Menstrual Cycle

The business cycle is economic phases of expansion and contraction, similar to the Follicular and Luteal phases of the menstrual cycle, with peak and trough turning points, similar to Ovulation and Menstruation.

We also discuss the importance of monitoring economic data, such as GDP and unemployment, to assess the health of the economy and make informed investment decisions. New data will be coming out the day this episode is released. ⁠⁠Subscribe to Our Newsletter⁠ ⁠ to stay informed!

Related Links:

⁠Ep 13. Are We In A Recession?⁠

⁠FRED - St. Louis Fed Dashboard⁠

⁠NBER - National Bureau of Economic Research - Business Cycle Dating chart⁠

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